Define all possibilities for compensation and amount of employer contribution in your plan document. Be sure to include timing issues such as how to handle compensation that is earned prior to entering the plan and compensation that occurs upon termination. (Examples include vacation and sick pay.)

Review your plan periodically, spot checking specific employee situations. You’ll make sure that your established system is working properly, and compensation-related benefits are consistent with the terms of your plan.

Compensation errors are quite common. They’re also easily correctable. However, if you don’t correct the error yourself and have and IRS audit, your plan can receive a significant financial penalty.

Please talk with your financial advisor or plan auditor to make sure that your plan is on track. As with all things IRS, the details and exceptions are numerous.